Despite often bitter debates on how to achieve it, there seems to be a fair amount of consensus across the political spectrum that increasing productivity is a desirable objective. But what isn’t always acknowledged is that it can be quite a slippery concept to measure in any meaningful way.
As a wise person once pointed out to me, the productivity statistics we fixate on are just an accounting entity, created by the relationship between the inputs in the economic process – primarily labour and capital formation – and the output (Gross Domestic Product).
Therefore, if you look at a period like the last decade, you can say that (up until recently) there was strong economic growth and moreover it was quite job-rich growth, with quite large rates of increase in employment – even for a high-growth period.
But you can also rearrange those figures and come to the conclusion that growth in labour productivity (GDP per employee) has been worryingly low.
You’re basically saying the same thing, just in a different way.
This also means that if we have a ‘jobless recovery’ from the recession – where GDP growth recovers, but employment growth isn’t very strong, and unemployment remains high, then it’s likely this will also show up as being a period of ‘high productivity growth’. (Berkeley economist Brad DeLong makes a similar point here.)
This might reflect that fact that renewed growth has been concentrated in sectors that are more capital-intensive and less labour-intensive than others. Which in itself doesn’t really tell us that our workplaces are becoming any more productive, just that the sector mix of economy is changing (maybe temporarily).
(If you use total factor productivity, this reduces these sort of problems, but doesn’t completely eliminate them.)
This doesn’t mean that productivity is meaningless or unimportant. But it does remind us that we need to be careful about the lessons we take from figures.
And it suggests that when trying to understand productivity it’s important to look at the microeconomic level and what’s going on in individual workplaces, how that’s changing, and why, as well as studying the aggregate figures.
That’s why understanding workplace productivity and what drives it is an indispensible part of any productivity agenda – and particularly for any progressive productivity agenda.
Tags: productivity
[...] at Policy Progress, David Choat reminds us to be careful looking at productivity stats. This is [...]
And it suggests that when trying to understand productivity it’s important to look at the microeconomic level and what’s going on in individual workplaces, how that’s changing, and why, as well as studying the aggregate figures.
Okay, this leaves us with a problem. The current productivity measures that are in place maybe open to alternative readings, and can be used to prove opposite truths at the same time, but they do have one advantage. They are quite easy to work out.
Looking at the DoL’s 7 Drivers of Workplace productivity, I’ve got to say, it would be a sod of a job to get actual comparative data out of these drivers. By which I mean statistics that can be externally observed, measured and used between organisations to measure progress on a national level.
It is right to sight these drivers as important on productivity, and they should be borne in mind by managers, but they will not in themselves produce the proof of advance you are looking for.
GDP should not be used as the ultimate measure, agreed, but we need a firm alternative.
that saying- better to be inexactly right, than exactly wrong – we must not let what can be measured dictate what is described. we do need to look at the micro level – there is wastage of skills – and too many barriers to people moving across occupations
What do people think of today’s announcements re a NZ Productivity Commission?
http://www.nzherald.co.nz/nz-government/news/article.cfm?c_id=144&objectid=10632916&pnum=2
that saying- better to be inexactly right, than exactly wrong – we must not let what can be measured dictate what is described. we do need to look at the micro level – there is wastage of skills – and too many barriers to people moving across occupations
True Maire. But it is a key point here is not only must Progressive progress be made – it must be seen to be made. If we move from GDP, the measure that replaces it has to be firmer than anecdotal evidence.
The issue of productivity has always interested me, as has the “evidence” from the right wing all around the world that the economic policies of the left always fail in regard to driving up productivity. Typically, as in New Zealand in the 2004 – 2007 years, right wing parties always declare that the progressive or, in some cases, transformative economic policies of the left are failures. Despite all the good information available such as higher median household incomes, high labour participation rates and improved statistics in unemployment – stats, stats and more stats.
Work has been undertaken to gain insights into productivity and true improvements in the key things that at a micro level demonstrate those improvements. Work place efficiencies through improved processes and systems, worker input into those same improvements, investment in capital, investment in research and innovation, investments in people. These things lead to improved worker participation in productivity. I am always loathed to hear right wing groups talk about productivity, this is always code for reduced expense on labour ie. job losses. Frankly, I’m always annoyed by the view that labour is only a cost when in actuality it can be a true asset to a business’ growth.
The idea of a productivity commission is almost ironic, almost. There is a dependency on the commission being clear about its mandate, if it is to DRIVE productivity it is likely to be about systems, enhancement, people and investment. If the commission is about FINDING productivity, look forward to the same old mantra of tax cuts and labour force reductions.
Unlike stats, fact bears truth. A happy workfroce and all that… ra ra…
Nice move from a no doubt happy, busy and dog tired new Dad!
Couldn’t agree more about the need to focus our attention on workplace level productivity. Successive governments, including the last one, have consistently placed most of their emphasis on macro level inputs when considering how to lift productivity levels. This is convential stuff in a global context, everyone is doing it so where is the advantage? It is probably the OECD prescription yet other countries, (especially the Scandinavians) go a whole lot further with their productivity policy. These inputs are important of course but only part of the story. The workplace is where these inputs come together, more or less effectively. How technology, skills, capital, are combined is vital and largely the prerogative of management. The story of NZs productivity peformance is intimately connected to management capability, and even Phil O’Reilly (BNZ), in his unguarded moments, admits we ain’t world beaters in that department.
Our own MED and other Govt agencies have argued valiantly and ideologically that it is not the business of governments to intervene in the workplace other than for ER and H&S matters. It is like messing with private property! Yet our productivity performance continues to languish.
There is plenty of experience around to indicate that many owners and managers are hopelessly bogged down overseeing wasteful, inefficient and highly frustrating workplace practices and processes that detract hugley from their own productivity performance. Because they are so busy fire-fighting and managing on-going small crises they end up spending very little time working on the things that would make the biggest difference to their businesses such as are they expanding their market and product bases, do they have the right business model, could they redesign their business and in so doing create new value, etc. There is also evidence to show that a few targeted initiatives that provide support for training in such things as lean thinking can make a profound difference to the performance of an organisation.
While the last Labour Govt flirted with a bit of this workplace level stuff with its productivity drivers etc this essentially amounted to a good promotional campaign and a few pilot projects which even when very successful were never followed up. If we were to take this seriously we might start investing in building our understanding of what goes on in NZ workplaces, we might build capability in providers of good quality support services and in managment capability and we might target support (50:50 cost sharing) carefully to companies that are ready and willing to both lift their own game and that of the their supply chains. We would also leverage existing networks and institutions and altogether create an environment that was conducive to a major shift in how we view the workplace.
Perhaps the greatest motivation for social democrats to pay more attention to the workpalce is that this is where many voters spend most of lives, often in frustrating and demeaning circumstances. As Jamie Belich puts it: we need more on offer than just the “mundanity of pursuing economic maximisation”. Most people want a good life as well as to make a good living.
[...] a Thing of the Past, found via War-N) about how the traditional work day (9-5²²) is veryProductivity Pitfalls Policy ProgressSuccessive governments, including the last one, have consistently placed most of their emphasis on [...]